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ECB clamps down on liquidity abuse

OCTOBER 2008

But it insists the old scheme worked fine

The ECB had become a dumping ground for assets no one else would accept

The European Central Bank's liquidity scheme was a dumping ground for unsellable assets. The bank recently unveiled major reforms to its system, but insists the scheme has worked well.

The ECB announced that it would make it less advantageous to access central bank funding by imposing a larger haircut on deposited collateral.

"We wanted to ensure that the Eurosystem remains adequately protected against the observed changes in financial markets," said Jean-Claude Trichet, president of the ECB. "These measures do not change the general characteristics of the Eurosystem's...